If History Rhymes... We're in Trouble

In today's Masters Series, originally from the October 20 issue of the free Altimetry Daily Authority e-letter, he compares today's economic turmoil with the market chaos of the late 1940s... explains why a looming credit crunch signals a recession is inevitable... and details how investors can prepare themselves for this massive downturn... [Stansberry Research Logo] Delivering World-Class Financial Research Since 1999 [Stansberry Master Series] Editor's note: It's only a matter of time... Investors are still on the lookout for any signal of a "soft landing." But according to Rob Spivey – director of research for our corporate affiliate Altimetry – the credit market is one of the strongest indicators of a looming crisis... and it's flashing "red" today. Rob stresses that investors must pay attention to the credit market in order to understand how to prepare their portfolios for 2024. In today's Masters Series, originally from the October 20 issue of the free Altimetry Daily Authority e-letter, he compares today's economic turmoil with the market chaos of the late 1940s... explains why a looming credit crunch signals a recession is inevitable... and details how investors can prepare themselves for this massive downturn... --------------------------------------------------------------- If History Rhymes... We're in Trouble By Rob Spivey, director of research, Altimetry If they had the term "soft landing" in 1948, they would've used it... The massive effort to win World War II had pushed the U.S. to maximum employment for much of the early '40s. But no one was spending through much of those years. So when we declared victory and rationing came to an end... everyone rushed to spend all that money that was burning a hole in their pockets. In fact, they were in such a rush that it set off a historic run of inflation. The market panicked. Stocks tanked nearly 30% in 1946. Once the Federal Reserve finally jumped into battle in 1947, investors worried the central bank would force a recession to halt inflation. But fast-forward a year, and a downturn still hadn't materialized. The Dow Jones Industrial Average was up 17%. Investors took it as a sign that the worst was over. If this story sounds familiar, it's because it's almost exactly what we've lived through for the past three years. Back then, almost as soon as investors let their guard down... they regretted it. The market's ugly surprise hit just as folks were singing the Fed's praises. And as I'll explain today, that's exactly what we're seeing this time around... The post-war spending boom could only last so long... Eventually, all the cash people saved during the war dried up. High inflation helped speed that along... and so did access to credit. In late 1947 and 1948, the Fed was doing a lot to slow down credit access. It hiked interest rates. It increased reserve requirements for banks. And it even sold a bunch of its Treasury bonds. (If you thought "quantitative tightening" was first introduced in the 2000s, think again...) By mid-1948, the Fed had cut inflation in half. But President Harry Truman was still concerned about persistent high prices. So he took even more drastic measures to cool things down... --------------------------------------------------------------- Recommended Link: [RECAP: Last Week's Severe Fed Warning]( Marc Chaikin helped build Wall Street. Joel Litman spent his career denouncing it. But they both agree that the Federal Reserve's next move will threaten your wealth more than anything else today. Plus, they share the EXACT step to take with your money to protect yourself and see 5x potential gains. Don't get blindsided – see what's coming and how to prepare immediately, [right here](. --------------------------------------------------------------- In September 1948, Truman enacted credit controls that further limited folks' access to the credit market. Truman's actions cooled down consumer spending. They also started a vicious cycle. Businesses weren't selling as much... which made their financials look worse. Lenders already couldn't lend much to consumers. And they were getting nervous about lending to declining businesses. Lending standards started to rise in 1948, which led to a credit crunch. And almost immediately, the U.S. economy dropped into a recession that lasted until 1949. Take a look... Gross domestic product dropped 1%. Even more telling, corporate default rates flared up... from no defaults in 1948 to defaults from almost 1% of all rated companies in 1949. Of course, investors panicked about the wave of defaults. The stock market gave up all its gains from the past year and retested its post-WWII lows. In short, investors forgot about the credit market... They were too focused on the promise of a soft landing. And they missed the warning signs as a result. Unfortunately, we're seeing the same mistakes play out this time around. I spoke about this setup last year, at Stansberry Research's annual conference... and gave an updated version of the same talk this year. If you were able to catch my presentation in October, you know my opening line was "We told you so"... Last October, I said we wouldn't immediately fall into a recession in 2023. I warned that a strong market might lull investors into a sense of calm. But I also explained that credit issues could come home to roost by 2024... The S&P 500 is still up around 19% this year despite recent volatility. At its peak, it was up 20%. The stock market is ignoring the credit market... like it did in 1948. But trouble is brewing. Consumer cash is drying up. The bottom 80% of American households by income have less in savings today than they did before the pandemic. At the same time, banks are once again worried about lending. More than 50% of banks tightened lending standards in the most recent quarter. And bankruptcies are already creeping up... a sure sign of a looming downturn. Next year is going to be a rough one. Stocks will give up most – if not all – of their gains from the past year. Investors ought to be cautious in stocks going forward. We're getting closer and closer to a classic credit-crunch-induced recession. Nobody in the stock market seems prepared. Don't make the same mistake. Regards, Rob Spivey --------------------------------------------------------------- Editor's note: Investors should be worried about signals from the credit market... And that isn't the only worrying shift in the markets today. According to Rob's colleague and Altimetry founder Joel Litman, a new financial crisis has quietly been developing in stocks. Joel says if you aren't prepared for this rare market event, your portfolio could suffer catastrophic losses. He recently teamed up with Chaikin Analytics founder Marc Chaikin to issue a brand-new warning... and revealed how to capitalize on what's coming next. [Catch up on the full details here](. --------------------------------------------------------------- Recommended Link: [Must See: Subscriber's Viral Holiday Video]( Have you seen this holiday message from one of your fellow readers yet? He retired early thanks to ONE investing idea that doesn't involve stocks... options... or cryptocurrencies. And he has kept on enjoying retirement – worry-free – right through all of the volatility of the past year. The secret? A simple strategy for seeing double-digit annual income... AND triple-digit capital gains... with legal protections (even in an economic crisis). [Click here for his new holiday message](. --------------------------------------------------------------- You have received this e-mail as part of your subscription to Stansberry Digest. If you no longer want to receive e-mails from Stansberry Digest [click here](. Published by Stansberry Research. You're receiving this e-mail at {EMAIL}. Stansberry Research welcomes comments or suggestions at feedback@stansberryresearch.com. This address is for feedback only. For questions about your account or to speak with customer service, call 888-261-2693 (U.S.) or 443-839-0986 (international) Monday-Friday, 9 a.m.-5 p.m. Eastern time. Or e-mail info@stansberryresearch.com. Please note: The law prohibits us from giving personalized financial advice. © 2023 Stansberry Research. All rights reserved. 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